The following income statements and other information are available for the Rich
ID: 2581639 • Letter: T
Question
The following income statements and other information are available for the Richetti Company: 2016 $381,645,000 $268,330,000 $173,882,000 209,904,750 128,798,400 83,463,360 171,740,250 139,531,600 90,418,640 2017 2015 Sales Less cost of goods sold Gross margin Less Selling and administrative costs Research and development 26,715,150 26,833,000 17,388,200 8,694,100 129,759,300 99,282,100 64,336,340 38,927,790 29,784,630 19,300,902 $90,831,510 $69,497,470 $45,035,438 $722,162,000 $692,433,000 $441,292,400 9,075,890 12% 15,265,800 13,416,500 Income from operations Less taxes on income Net income Total assets Noninterest-bearing current liabilities Cost of capital 12,914,000 10,815,500 12% 12% Calculate EVA for 2017. Assume that for purposes of calculating EVA, the company capitalizes research and development expenditures and amortizes them over 3 years, including the year they are incurred. For external reporting purposes, research and development is expensed in the year incurred, as indicated in the income statements above. (Round answer to the nearest whole dollar, e.g. 5,725. Enter negative answers preceding either - sign, e.g.-45 or in parentheses, e.g. (45).) EVA for 2017Explanation / Answer
Working Note 1: Analysis of R&D expense: ($) 2,015 2,016 2,017 R&D Expense incurred 8,694,100 13,416,500 15,265,800 amortization period (years) 3 3 3 Amortised cost per year 2,898,033 4,472,167 5,088,600 Amortization schedule: Incurred in 2015 (w/off till 2017) 2,898,033 2,898,033 2,898,033 Incurred in 2016 (w/off till 2018) 4,472,167 4,472,167 Incurred in 2017 (w/off till 2019) 5,088,600 Total R&D cost amortised for the year $ 2,898,033 7,370,200 12,458,800 (for EVA purpose) Working Note 2: R&D expese to be capitalised: $ 2,015 2,016 2,017 Op balance of cost - 5,796,067 11,842,367 Add: Cost incurred for the year 8,694,100 13,416,500 15,265,800 Total R&D expense(op bal + cost added) 8,694,100 19,212,567 27,108,167 Less: Amortised cost (cost w/off) (2,898,033) (7,370,200) (12,458,800) Capitalised R&D expense for the year (cl balance) 5,796,067 11,842,367 14,649,367 (Total less amortised cost) Note 3: Capital employed: 2,015 2,016 2,017 Total Assets as given 441,292,400 692,433,000 722,162,000 Add: Capitalized R&D expense as calculated 5,796,067 11,842,367 14,649,367 Less: Non interest bearing current liab (NIBCL) (9,075,890) (10,815,500) (12,914,000) Invested Capital (sum of the above) 438,012,577 693,459,867 723,897,367 Note 4: Net profit after tax 2,015 2,016 2,017 Net Profit after tax as given 45,035,438 69,497,470 90,831,510 Add: R&D expense written off fully 8,694,100 13,416,500 15,265,800 Less: R&D expense amortised (2,898,033) (7,370,200) (12,458,800) Adjusted Net Pf after tax 50,831,505 75,543,770 93,638,510 Calculation of EVA (Economic Value Added): Economic Value Added = Net Profit after Tax - (Invested Capital * cost of capital) EVA for 2017: 2,017 Net profit after tax 93,638,510 Invested Capital 723,897,367 Cost of capital 12% Economic value added $ (for the year 2017) 6,770,826 (93638510-(723897367*12%))
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